28 Feb 2015

Indian equity markets have generated returns
of 30% over the past year but that doesn’t mean the opportunity is lost. Macroeconomic
conditions, combined with stable politics, a government committed to
market-favourable reform plus interest rate cuts provide plenty of scope for another
two to three years of excellent returns. Next week’s Union Budget should serve
to emphasise the prospective outlook; next week’s Trading Day is an opportunity
to buy Himalayan Fund in anticipation.

27 Feb 2015

Wholesale prices have gone into reverse now,
the WPI print for January was -0.4%; the major drivers were fuel and power but
declines were fairly broad-based. This week though, the prices of petrol and
diesel were increased for the first time since last August. Service exports
were 11% higher year on year in December at $14.3bn. PM Modi repeated his
encouragement to domestic defence industries, promising that domestic products
would be given preference in procurement programmes. He added that the tax code
would be used to ensure that domestic producers would be on a level playing
field with importers.

Pidilite has taken advertising slots during
the current ICC Cricket World Cup for its Dr. Fixit and Fevikwik products
having found the audience numbers compelling. Infosys has acquired Panaya, a US
software service company for $200mil; Panaya provides cloud-based software
automation services for users of the likes of SAP and Oracle software. Infosys
also announced a new multi-year contract from ABN AMRO to provide IT services
in retail and commercial banking. Lupin is launching a new version of its asthma
delivery device in the US in cooperation with InspiRx, a respiratory R&D
company. Lupin has also contracted with Celon Pharma of Poland to develop and
market a generic version of GSK’s Advir Diskus asthma treatment in global
markets. ONGC has signed a MoU with Super Wave Technology to jointly develop
and alternative to hydraulic fracturing for extracting shale oil and gas.

26 Feb 2015

Global liquidity as well as
domestic reform, with the prospect of more to come, support the market for now.
The market valuation stands at 16.8 times twelve month forward earnings,
compared to a long-term average of 15.6 times. The implementation of nationwide
GST, successful auctions of coal mine licenses and mobile spectrum and the
probability of continued monetary easing should provide a basis for further
rerating over the next couple of years.

25 Feb 2015

Overall, third quarter profits have been a
disappointment for India, but compared to the rest of the world... Revenues advanced by just 5% in aggregate as many sectors faced
continued soft demand conditions at home and economic weakness abroad. Profits
only improved by 2.5%. Sectors reporting declining sales overall included
Industrials, Metals and Mining and Utilities. Top performers for sales growth
were IT, Media and Healthcare. This may prove to be the low-point for quarterly
earnings as the macroeconomic environment is improving nicely: the current
account deficit is down, the fiscal deficit is in decline and inflation is well
down.

The third quarter results season has drawn to
a close, with three results of interest this week. Predictably, ONGC, the PSU
energy heavyweight saw sales down by 9% and profits 50% lower, hit by sharply
reduced realizations due to the oil price. Balkrishna Industries, after last
quarter’s disappointment, declared sales ahead by 9% and profits by 5%; some of
its weaker markets are recovering already. HDFC Bank sustained its reputation
as the market’s favourite banker with a gain of 23% in net interest income and
a 20% gain in profits.

24 Feb 2015

Greece’s game of chicken with Germany
continues to hold markets in thrall. And deflation concerns started
to weigh on the conventional wisdom about the timing of US rate increases.
Meanwhile, India is being propelled by optimism for the Union Budget next week,
as the Nifty added 28 points to close 0.3% up at 8834 after trading in a range
of 1.3%. Daily trading volumes stayed above average this week, at $3.8bn as we
witnessed the rare coincidence of FIIs (+$569mil) and domestic investors
(+$66mil) all net investors in cash equities. Market breadth was thin however,
with advances and declines in balance. Three stocks worth 18% of Nifty
capitalization added 169 points to the index while two, worth just 8% of market
cap deducted 76 points. Volatility was stable, the India VIX trading mostly
between 20 and 21 where it closed. Three month index futures closed at a
premium of 1.5% to cash.

18 Feb 2015

With CPI remaining well
below the RBI medium term target of 6%, conditions remain conducive to further
monetary easing. The RBI governor is keen to see a strong commitment from
government to fiscal consolidation, however, so we will probably have to wait
for the Budget to be digested before we see another move. Mr. Rajan may be more
likely to move again outside the cycle of policy review meetings, having set
the pattern. Consensus thinking now expects another 50 basis points of repo
rate cuts by mid-year. Moving from 7.75% down to a probable target of 5% in 25
basis point steps will probably take two years, so, barring unexpected
surprises, India’s stock markets should enjoy monetary policy support for some
time to come.

17 Feb 2015

Tech companies dominated
the corporate news this week. Infosys has won an IT services contract from
Dutch insurer asr, to provide back office
services for the company’s pension administration services. Infosys will take
on close to 100 asr staff.
Infosys also reported a new multi-year contract with ICA Gruppen, a top Swedish
retailer, to manage its IT operations with a view to saving $10mil a year in
costs. TCS was also in the news, working with Singapore Airlines to introduce
CrewCollab, a tablet-based application for cabin crew. The app is to help
personalize passenger relations and streamline in-flight procedures. ICICI Bank
is repatriating capital from its Canadian subsidiary for the second time in two
years, to boost its capital ratios. The private sector bank is also planning to
withdraw surplus capital from its UK subsidiary.

16 Feb 2015

India’s trade deficit
improved in January, to an eleven-month low of $8.32bn, thanks to a 17% drop in
the cost of oil imports. A $10 fall in the oil price is estimated to help the
current account deficit by 0.5% of GDP and reduces the fiscal deficit by 0.1%.
The new time series for Indian GDP will deliver a growth number of 7.1% for the
current fiscal year, driving total GDP to $2trn. January’s CPI print was 5.1%
compared to 4.9% in December but still a positive surprise. December’s IIP was
1.7% compared to 3.9% in November and 0.1% a year earlier. Mining contracted
again, still affected by closures as the market awaits the re-auction of coal
licenses. More importantly, a decline of 9% in the Consumer Durable sector
shows that the government has a tough job ahead to drive growth: re-igniting
public sector investment as a primary driver is expected to feature in the
Union Budget. The Budget is expected to include an aggressive programme of
disinvestment, including some IPOs, to raise some $7.5bn for the treasury, to
help balance the fiscal deficit as well as providing funds for infrastructure
investment. A study has shown that Maharashthra and the National Capital Region
attracted 49% of all Indian FDI between them in the period since 2000. India’s
telecom subscriber base grew to 970 million by December 31st, 2014.

15 Feb 2015

Two Indian companies published results this
week. Magma Fincorp saw revenues grow by 40% as it focussed on financing
products experiencing strong demand. Profits were hit by additions to loss
reserves, however, growing by just 9.6%. Nestle India saw its recent focus on
higher margin products pay off as sales advanced by 12% and profits by 17.6%.

Last week, China’s trade
data showed a decline in exports combined with a major collapse in imports
leading to an unprecedented trade surplus. This emphasises the failure
of policy efforts to drive consumer demand. This worried markets but an
apparent cease-fire deal in the Ukraine boosted sentiment later in the week so
equities closed on an upswing. India broke a seven-day losing streak to recover
its upward momentum, the Nifty adding 145 points to close 1.7% up after trading
in a range of 4.1%. Daily trading volumes were in the $3.5bn range, slightly
above the trailing average in spite of net sales of $434mil by FIIs; domestic
investors bought a net $349mil. Market breadth was strong, with advances
outrunning declines by more than three to one. There was some heavy
concentration on the buy side, however: four stocks worth just 13% of index
capitalization contributed 50% of the points’ gain for the week, half in the
banking sector. Volatility was steady with the India VIX trading around last
week’s close before softening on Friday, to close a point lower at 20. Index
futures again indicate a positive opening next week, closing at a premium of
close to 2%.

12 Feb 2015

ONGC will invest about $4bn to add 17mil
tonnes of oil production and 56billion scmd of gas production. Gas output will
jump by 81% to a total of 116mmscmd by 2019, when new wells in the eastern and
western offshore fields come on stream. Kotak Mahindra Bank will acquire just
less than 20% of Airtel M Commerce Services Ltd. subject to the company winning
a Payment Bank license under the RBI’s new scheme. Airtel M Commerce is market
leader Bharti’s mobile payments business. HDFC Bank moved quickly into the
markets after final approval of its 74% FII holding structure: it raised just
short of $100mil in a share placement combined with a placement of 22 million
ADRs.

11 Feb 2015

The government is to amend the base year for
GDP comparison from FY05 to FY12 and switch to market prices from gross value
added in the calculation. This has resulted in FY13 GDP growth being restated
as 5.1% and FY14 as 6.9%. Direct tax collection in the first nine months of
FY15 has risen by 12.9%, short of the Budget target but there appears to be
enough going on to ensure that the amended fiscal deficit target of 4.1% of GDP
will be met..The sale of 10% of Coal India was completed, raising $4bn for the
Treasury, more than half of the annual target. A further 5% sale is slated for
next year. The 3G spectrum auction is scheduled for the first week of March and
the floor price suggests that a cumulative $16bn will eventually be raised. In
a move to soothe foreign investors’ nerves, the government has decided not to
challenge the high court finding in favour of Vodafone in the long-running
share transfer dispute. It has also instructed the tax authorities to apply the
precedent set in other cases.

Whereas China's workforce began to shrink in 2012, more than half of India's current population is younger than 25. The Economist expects the Indian economy to make a huge jump forward. Read more The Economist.

10 Feb 2015

Late results continued to trickle in. Our
favoured Healthcare sector was a little disappointing. Torrent Pharma reported
sales ahead by 15.1% but profits only advanced by 5.7% as sales of new
formulations in the US disappointed. Lupin reported sales ahead by only 5.4% as
the pace of USFDA approvals slowed late in the year. Profits gained 26.3%
however and the pace of approvals has recovered: the USFDA has just approved
Lupin’s generic version of Vancocin, a diarrhoea treatment, in two strengths.
Pidilite saw sales ahead by 12.5% and profits by 27.9%. ICICI Bank reported net
interest income ahead by 13.1% and profits by 14.1%; the market was
disappointed by a 13% increase in gross non-performing loans. Overall, at this
stage, earnings reports which were equal to or better than forecast are running
at a slight majority but the aggregate forecast for Nifty earnings for the
current fiscal year has been cut to just over 12%.

The first quarter often sees investors
switching between markets on the back of strategists’ recommendations for the
year. Investors who exited Himalayan Fund a year ago missed a return of more than
40%. Beneficial reforms as well as favourable fiscal and monetary policy action
may deliver a repeat performance this year!

9 Feb 2015

The RBI held its periodic monetary policy
review. Following January’s repo rate cut, the governor said they will wait for
the Budget before making any further decisions. Meanwhile, he reiterated that
inflation was still a threat but announced a 50 basis point cut in the
Strategic Liquidity Ratio (SLR) to 21.5% to prompt banks to accelerate lending.
The Union Budget will be announced on February 28th, following the
economic review and the railway budget earlier that week.

Since our last commentary, S&P has
downgraded Russia’s debt to junk for the first time in ten years and the Fed
has upgraded its US economic outlook, supported by strong employment numbers.
Greece has rattled the EU by voting in an anti-austerity government and China
has cut bank reserve requirements in an attempt to stave off deflation. Against
this background, equity markets have been fairly sanguine, but India’s Nifty has
given back 175 points, retreating by 2% to close at 8661 after trading in a
range of over 4%. Daily trading
volumes have been strong, above average. Foreign institutional investors injected a net $562mi, yet domestic investors sold $627mil. Volatility has
shaken off its lethargy, as the India VIX spiked upwards to 21 where it closed.
Breadth was narrow, as declining counters outran advances by two to one. There
were heavy concentrations in both directions as about ten heavyweight stocks
swung back and forth on results announcements. At the end, however, index
futures suggested a restoration of upward momentum next week as the three
months’ contract closed at a premium of 2.25% to cash.

About Himalayan Fund NV

The Himalayan Fund N.V. is an investment company with its primary objective to generate long-term capital gains for shareholders by investing in India.

This blog shares with you interesting, weekly news about the Indian economy. It provides insights about the financial situation in India and its market. The team of Himalayan Fund offers knowledge about investment opportunities relating to India.

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